"Cost basis" is the original value or purchase price of an asset for tax purposes (in our case, cryptocurrency is the asset).
Example: Were you an early adopter and bought 1 BTC for $2,000 before the price skyrocketed? Then your cost basis for that purchase is $2,000.
Cost basis is both a critical part of calculating your crypto taxes, and one that is often overlooked or misunderstood. Because crypto is considered a capital asset, it's taxed based on the difference in value between the moment that you acquire an asset and the moment that you dispose of an asset. In other words, your capital gain or loss is what will be taxed.
In order to determine any potential gains or losses you made, we need to know the asset value at the time of purchase, i.e. cost basis. Cost basis is established when buying an asset, receiving it in a crypto to crypto trade, from mining, staking, airdrop, hard fork, interest earned, rewards, or as a gift.
In short, without knowing what your cost basis is, TaxBit can't produce an accurate tax form.
- How is the cost basis used for tax purposes?
- What is a “cost basis pool?”
- How can I see the cost basis of my completed transactions?
Looking for more information? Reach out to our Support Team and we would be happy to help with any questions you may have.